WEAKNESSES

RISK ASSESSMENT

Limited upturn in growth

Impacted by drought and lower raw material prices, the Namibian economy continued to suffer in 2017, with reduced public expenditure. However, following two consecutive years of slowing economic activity, punctuated by a recession in 2017, growth is expected to start recovering in 2018. Any upturn in the rate of growth will be essentially driven by further increases in agricultural and mining production, which has already helped limit the downturn in growth in 2017. Badly impacted by the extended drought, and made worse by the effects of the El Niño climate pattern in 2016, the agricultural sector is set to continue the improvement that began in 2017. The raising of the minimum wage for agricultural workers - reflecting this upturn in an economic sector that employs (directly or indirectly) almost 70% of the population – should have a beneficial knock-on for household consumption.

Following its recovery in 2017 from three years of contraction, a revival in the mining sector is also likely to stabilise in 2018. With the increased production from the Husab uranium mine, where operations began at the start of 2017, the country (currently the world’s fifth leading producer) should climb the rankings of uranium producers (behind Kazakhstan and Canada). The Otjikot copper and Tschud gold mines, active since 2015, are also expected to contribute to the level of activity. Launched in June 2017, the world’s largest deep-water diamond exploration and sampling vessel should further help the diamond sector consolidate its recovery. The decline in public consumption, which has been a drag on growth, is also expected to be reversed with the upturn in revenues generated from the extraction of mineral resources in the country. The agricultural production processing industries could be particular beneficiaries of this.

However, with continuing tight budgetary limitations, the recovery in 2018 will likely be somewhat restrained. The increase in levels of private investment could be slowed as a result of the rhetoric of radical operational environment changes which are part of the New Equitable Economic Empowerment Framework (NEEEF). Reflecting the downwards dynamic of inflation seen in South Africa, prices are expected to continue gradually slowing through 2018, while still remaining vulnerable to the volatility of the rand (to which the Namibian dollar is linked).

Gradual budget consolidation

Increased revenues from the recovery in customs duties paid by the SACU, as well as from mining sources, helped reduce the deficit for the 2017/18 fiscal year. The situation for the following year is expected to be slightly comparable, thanks to further increases in mining sector revenues, which will help offset the expected reduction in payments from the SACU. In terms of expenditure, the government is planning a slower rate of consolidation, already tempered over the last two tax years. The government is thus planning a reduction in spending of 1% of GDP in 2018/19. Despite the planned reduction, the deficit is expected to remain at a high level, and there is a possibility of budgetary slippage in the run up to the 2019 elections. In order to finance the deficit, debt is set to continue increasing, although at a slower rate than in recent years. As a result of the country’s worsening budget situation and debt ratios, Moody’s downgraded Namibia’s bond and issuer status to “junk” in August 2017. The cost of debt is therefore likely to rise over the coming months.

Thanks to a favourable shift in the balance of trade, the current account deficit is expected to fall in 2018, while remaining in deficit. Increased mineral exports will likely be the biggest contributor to this, with the weakness of economic activity – and most notably the construction sector – making itself felt in terms of the levels of imports. The customs duties paid to Namibia as part of the SACU, which were critical in boosting the transfers balance surplus and thus in reducing the current account deficit in 2017, are expected to remain static, however. A loan from the ADB, granted in June 2017, helped Namibia maintain a better level of currency reserves, and so it should be able to sustain parity with the rand.

Swapo set for the 2019 elections

Having consolidated his position as leader of Swapo in November 2017, despite internal divisions, President Hare Geingob now has a clear run at re-election in 2019. Swapo, having held power since independence (1990), is expected to once again reassert its total domination of the political stage. There could, however, be signs of waning support for Namibia’s leading party, as levels of inequality and unemployment remain extremely high in a context of slowing economic activity. At the same time, the relatively poorly-organised opposition is unlikely to threaten the Swapo hegemony.

Thanks to its regular progress in terms of enforcing contracts, Namibia brought to an end its ten year-long unbroken decline in the Doing Business rankings. In the 2018 rankings, the country has thus progressed from 108th to 106th (out of 190 countries). While the country is therefore among the ten highest-ranked countries in Sub-Saharan Africa, the lack of any new reforms lies behind Namibia’s decline in competitiveness when compared with its competitors in the SADC.